Some Strip Shopping Centers Hard Up

July 15, 1990|By Chris Burritt, Cox News Service.

ATLANTA — Colorado art dealer Jim Marks had high hopes in 1985 when he opened a gallery in Plaza Walk. With the bull market roaring and Atlanta booming, what better place to be, he thought, than in a nice strip shopping center.

But today the 55,635-square-foot center is eerily vacant except for the Dalt`s and Sizzler restaurants. Virtually all of the storefronts are dark, a bleak reminder of the severity of the current glut in strip centers.

The shakeout is occurring across the country, especially in markets where supermarket and discount store anchors are jumping to new, bigger centers to get an edge over rivals. When this occurs, traffic in the old centers dries up and hurts the remaining tenants.

``We`re almost in the phase of disposable shopping centers,`` said Harold Cannon, chief operating officer for Banker`s Note Inc. The women`s clothing chain, which is concentrated in strip centers, is plotting a strategy of opening more mall stores, partly to avoid strip center headaches.

The overbuilding of strip space in the late 1980s, combined with a soft retail market and cut-throat competition, is taking its toll on merchants and developers.

Marks, 50, said he closed his store in the center a year ago and relocated his business to Marietta, Ga.

``I came within a breath of bankruptcy`` in Plaza Walk, he said.

Plaza Walk is undergoing a facelift and has its third name, Buckhead Court. But like dozens of others in and around Atlanta, it is scrambling to secure big tenants, a crucial ingredient in the success of strip centers.

``I`ve never seen it this bad before,`` complained Galen Kilburn, an Atlanta developer. ``And I don`t think it has bottomed out yet.``

Ewing Southeast Realty Inc., a large Atlanta-based developer, does not expect the rising rate of strip center vacancies in its 18-county metropolitan area to turn around until 1991. Even then, industry officials said, the shakeout likely will continue for years.

Strip centers also are facing a growing threat from ``power centers,``

large centers with several big anchors that draw customers from wide areas, much like malls.

Developers of older traditional centers struggle to hang on to their anchors. When they do lose them, they typically face two choices: renovating the centers to compete against the new properties or turning out the lights.

Given the harsh reality, Kilburn feels fortunate to have secured a supermarket as the new anchor for Killian Hill Shopping Center in Lilburn, Ga. The former anchor, also a supermarket, moved nearly two years ago to larger space in nearby Lilburn Market Place.

``When an anchor goes dark, it profoundly affects the balance of the center because those small tenants rely on the anchor to bring in traffic,``

Kilburn said. ``The small mom-and-pop merchants have a tough enough time making it even with anchors.``

Martha Britt can vouch for that. She closed her card shop in a Gwinnett County strip center after K mart moved to another location. Now she manages a card shop in Lilburn, saying, ``I`ll leave the headaches to somebody else.``

In the go-go days just five years ago, heady retail sales attracted fee-hungry developers who rolled out speculative strip centers, often without first securing anchors, said Atlanta broker Etta Gross Edelstein, of Portman Barry Investments Inc.

Further, developers often made investments far from their home states and sometimes misunderstood those markets.

Another cause of the glut was the relative ease with which developers could borrow money in the mid-1980s. Unlike today, with the savings and loan crisis worsening almost daily and financial institutions under intense federal scrutiny, many institutions were eager to lend money for real estate ventures. The fallout from poorly planned centers is being felt nationally.

``Many ill-conceived strip centers will be bulldozed because the land is the only thing they possess of value,`` a recent Arthur Andersen & Co. newsletter reported.

It estimated that by the end of the decade $12.3 billion worth of retail real estate from insolvent thrifts could be put up for sale.

Another source of financing that largely has evaporated was wealthy individuals who, before tax reform in 1987, easily could shelter income by investing in real estate, said Raemon M. Polk, partner in charge of Peat Marwick`s real estate practice in Atlanta.

``There are a lot of properties out there and not enough tenants,`` Polk said. ``That means somebody is going to have to hold the bag on vacancies.``